Australia’s $2 Billion Hydrogen Production Credit: What It Means for the Green Energy Sector

Ujjwal Maheshwari Ujjwal Maheshwari, May 17, 2024

In the Federal Budget for 2024-25, the Australian Government introduced a transformative $2 billion hydrogen production credit. This bold initiative aims to accelerate the development of the green hydrogen industry in Australia, positioning the country as a global leader in renewable energy. By focusing on hydrogen, the government is taking a significant step towards achieving net-zero emissions and creating a sustainable, greener economy.


So How Will the Hydrogen Production Credit help?

The $2 billion hydrogen production credit is meant to help with the high costs of making renewable hydrogen by closing the price gap between what it costs to make and what it sells for on the market. This credit will make green hydrogen projects more financially feasible, which will encourage private investment and speed up the process of going to market.

This credit is part of the larger Hydrogen Headstart program, which also got an extra $2 billion in funding. It helps the business get past a major problem: the high cost of making hydrogen.

Making hydrogen from green energy sources through electrolysis is more expensive right now than making hydrogen from fossil fuels. The goal of the hydrogen output credit is to level the playing field and make green hydrogen a better energy choice.


The Impact can be very substantial

The Hydrogen Headstart program, initially funded with $2 billion, supports large-scale projects to produce renewable hydrogen or its derivatives, like ammonia or methanol. With an additional $2 billion in funding, the program can help more projects reach maturity, thereby accelerating the growth of Australia’s renewable hydrogen industry.

In its first round, the Hydrogen Headstart program shortlisted six applicants. The additional funding for the second round will support even more projects, creating a robust pipeline of green hydrogen initiatives.


For the greater good!

The hydrogen production credit is part of the broader $22.7 billion Future Made in Australia package. This package aims to maximize the economic and industrial benefits of the transition to net-zero emissions. By fostering the development of new industries, the government seeks to create jobs and opportunities, ensuring that Australia remains an indispensable part of the global economy.

Key initiatives within this package include a $7 billion production tax incentive for the processing and refining of critical minerals and a $6.7 billion production tax incentive for renewable hydrogen production. These incentives are expected to unlock more than $65 billion in investment in renewable capacity by 2030, driving economic growth and job creation.


Creating a better investment environment for Renewables

By providing targeted incentives for renewable energy projects, the government hopes to attract both domestic and international investors, further boosting the green energy sector.

Together with the hydrogen production credit and other incentives in the Future Made in Australia package, the Capacity Investment Scheme should create a conducive environment for renewable energy investment. The goal is to ensure that Australia can meet its ambitious target of 82% renewables by 2030 as outlined by Energy Minister Bowen.


Broad Support for the Hydrogen Production Credit

The $2 billion hydrogen production credit has received broad support from various industry stakeholders. The Australian Renewable Energy Agency (ARENA), which will administer a significant portion of the funding, welcomed the expanded funding and new programs announced in the Budget for 2024-25. ARENA’s CEO, Darren Miller, emphasized the urgency of reducing emissions and the critical role that ARENA plays in driving the energy transition.

The Clean Energy Council (CEC) also praised the budget, calling it the biggest clean energy budget in Australia’s history. CEC CEO, Kane Thornton, highlighted the budget’s potential to unlock tens of thousands of clean energy jobs and place renewables, green metals, and critical minerals at the heart of Australia’s economic future.


A Vision for the Future

The Australian Hydrogen Council (AHC) applauded the government’s vision for Australia’s hydrogen industry. AHC CEO, Fiona Simon, emphasized that hydrogen not only provides a pathway to decarbonise hard-to-abate sectors, but also establishes new high-value exports in green steel, green iron and green ammonia. The hydrogen production credit and the expansion of the Hydrogen Headstart program are seen as critical steps towards realising this vision.

Fortescue founder Andrew Forrest also expressed strong support for the hydrogen production tax credit, describing it as a crucial element in making Australia a global leader in green hydrogen production. Forrest highlighted the potential for green hydrogen to create economic opportunities of historical scale and lower power prices permanently.


The Role of Innovation and Tech

Innovation will play a critical role in the success of the hydrogen production credit and the broader green hydrogen industry. The Future Made in Australia package includes $1.7 billion to promote net-zero innovation, including for green metals and low-carbon fuels. This funding will support research and development efforts aimed at improving the efficiency and cost-effectiveness of renewable hydrogen production.

ARENA, with its expanded funding, will be at the forefront of these innovation efforts. Since its establishment in 2012, ARENA has supported over 727 projects with $2.6 billion in funding commitments, unlocking a total investment of almost $12.51 billion in Australia’s renewable energy industry. The additional funding will enable ARENA to build on this track record and drive further advancements in green hydrogen technology.


Unlocking this skill will require Skilled Workforce

The budget includes $1.1 billion to reform higher education and deliver a skilled workforce as well as $88.8 million for 20,000 new training places relevant to construction. These initiatives will ensure that Australia has the necessary human capital to support the growth of the green hydrogen industry.

The government’s $91 million commitment to accelerate the development of a clean energy workforce is particularly vital. As the green hydrogen industry expands, there will be a growing demand for skilled workers who can install solar, storage, and electric appliances, and build renewable energy infrastructure.


Takeaway: The initiatives will benefit the broader Australian economy

As the green hydrogen industry matures, the benefits will extend beyond the energy sector, driving advancements in manufacturing, heavy industry and other critical areas of the economy.

The hydrogen production credit is a game-changer for Australia’s green energy sector. This initiative has the potential to deliver substantial economic and environmental benefits for Australia, marking a pivotal moment in the nation’s journey towards a greener future.


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